Could This Massive Tobacco Merger Be More Than Just Rumor?

Rumors have been circulating this week that Reynolds American (NYSE: RAI  ) is thinking of acquiring Lorillard (NYSE: LO  ) , effectively combining the second and third largest tobacco companies in the U.S. In this segment from Thursday's Consumer Countdown, Motley Fool analyst Sean O'Reilly and Mark Reeth take a look at the tobacco business. Sean points to just how difficult organic growth in this segment in the U.S. can be with such a saturated market, and says that acquisitions may be the only option for these companies to grow.

While any acquisition here is still nothing more than speculation, Mark sees it as a deal that could soon be very necessary for Lorillard. With the company's strong specialization in menthol cigarettes, and Europe having moved to ban menthol and the FDA now weighing the evidence toward potentially making a similar move, being acquired by Reynolds American could be the safety net the company needs at just the right time. If these rumors don't materialize into an actual acquisition offer however, or if regulators decide that such a merger would create too large a company in this industry and strike the deal down, Mark says he would be staying away from Lorillard, and that Reynolds American, or the number one player in the space, Altria (NYSE: MO  ) , would be much more sensible buys in his eyes today.

Looking for more powerhouse stocks that you can own forever?
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 


Read/Post Comments (2) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2869629, ~/Articles/ArticleHandler.aspx, 8/28/2014 1:12:11 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement